Tuesday 22 March 2011

Risk On?

Last week the markets were in one of their periodic fits of crisis. The Tsunami and Nuclear Crisis in Japan, allied to problems in Bahrain and then Libya made conditions perfect for a huge flight away from risk equities and into bonds. Even commodities and Gold suffered.

This week the turnaround (including a bit of Friday too) has been pretty strong, maybe all those worries were not so bad after all? Actually, nothing has really changed. There is no progress at the Fukushima although the irrational fears about some sort of major fallout incident have receded. In the meantime the US/UK have started a new war in Libya which has in some ways created more instability by preventing Qaddafi from ending the rebel revolt. Nothing has change in Bahrain either except the lack of international focus on the country. Indeed, in Yemen and Syria the Arab revolutionary fervour is burning ever stronger.

So in many ways it is strange that the markets have bounced so strongly, is it the famous Dead Cat Bounce or is it they were too oversold? As usual, these things can only be worked out in hindsight but it will be interesting to see.

Also interesting in the crash of last week is the phenomenon of linkage across most asset classes. Gold and Silver fell 3% and the FTSE fell 5%, oil fell nearly 10%. Only the US dollar and treasuries/gilts do well in the new market of sell-offs. Perhaps when Armageddon arrives Gold and Silver won't quite be the havens of goldbugs dreams


rwendland said...

> irrational fears about some sort of major fallout incident

Do you know that Unit 4's spent nuclear fuel pond, open to the sky pretty much now, contains 2.7 reactor loads of spent fuel? One load fresh from the 30 November 2010 power-down, so hot stuff indeed.

I wouldn't call it an irrational fear once we realised most, if not all, the water in the pond had boiled off.

The spent nuclear fuel in Unit 4 pond generates about 2 MW of heat (2000 1 bar electric fires), and is capable of boiling 3 tonnes of water every hour (assuming no other significant heat losses). This is a problem still to be solved. Simply covering it in concrete does not solve it, as the heat would have nowhere to go, so would probably entirely melt the spent fuel, crack the concrete and/or cause small vapour explosions.

Elby the Beserk said...

Suggestion - regardless of what is happening south of Damascus, I wouldn't lump in Syria with the other Arab countries currently in strife. Assad is in fact very popular there, the economy is growing, tourism is growing, and the country is secular - e.g. teachers cannot wear Niqabs at school. The problems that occur in all such countries struggling out of the past, bureaucratic corruption are recognised and slowly being dealt with, and they have an education system which puts ours to shame. Truly.

I would council reading Syria differently to the Maghreb, Yemen and Bahrain. Until further notice!

Steven_L said...

Well XEL has got budging anyhow :)

Richard Elliot said...

I think the selling off last week was bit overdone. However, I'm not totally convinced by this recovery, with all the risk and instability around (well highlighted by CU) I think we are in for a bumpy few months.

I left all of my positions open as I think they are good in the long term and I haven't had any spare cash to react anyway.

I am with SL it is good to see XEL on the move. Here's hoping for a positive drilling report.

Richard Elliot said...

*The spare cash comment needs the context of 'reacting to short term trading opportunities'.

I type too quickly for my own good far too often.....

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